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+Cbapter 30: Stock Index Hedging Strategies 561 
+Another risk that the arbitrageur faces is that of changes in the dividend payout 
+of the stocks in the index. Suppose that he is long stocks and short futures. If there 
+are enough cuts in dividend payout, or dividend payments are delayed past the expi­
+ration date of the futures, then he will lose some of his return. Arbitrageurs who are 
+short stocks and long futures would have similar problems if dividend payout were 
+increased especially if a large special dividend were declared by a company that ,is 
+a major component of the index - or payment dates were accelerated. 
+If one holds the arbitrage until expiration, he will be able to unwind it at parity. 
+However, if he decides to remove the arbitrage before expiration, he might incur 
+increased costs that would harm his projected return. Instead of selling his stocks at 
+the last sale of the index, as he is able to do on expiration day, he would have to sell 
+them on their bids, a fact that could cost him a significant portion of his profit. 
+In a later section, where we discuss hedging the futures with a market basket of 
+stocks that does not exactly represent the entire index, we will be concerned with the 
+greatest risk of all, "tracking error" - the difference between the performance of the 
+index and the performance of the market basket of stocks being purchased. 
+IMPACT ON THE STOCK MARKET 
+The act of establishing and removing these hedge positions affects the stock market 
+on a short-term basis. It is affected both before expiration and also at expiration of 
+the index products. We will examine both cases and will also address how the strate­
+gist can attempt to benefit from his knowledge of this situation. 
+IMPACT BEFORE EXPIRATION 
+When bullish speculators drive the price of futures too high, arbitrageurs will attempt 
+to move in to establish positions by buying stock and selling futures. This action will 
+cause the stock market to jump higher, especially since positions are normally estab­
+lished with great speed and stocks are bought at offering prices. Such acceleration on 
+the upside can move the market up by a great deal in terms of the Dow-Jones 
+Industrials in a matter of minutes. 
+Conversely, if futures become cheap there is also the possibility that arbi­
+trageurs can drive the market downward. If positions are already established from 
+the long side (long stock, short futures), then arbitrageurs might decide to unwind 
+their positions if futures become too cheap. They would do this if futures were so 
+cheap that it becomes more profitable to remove the position, even though stocks 
+must be sold on their bid, rather than hold it to expiration or roll it to another series.